This is all about methods of international trade settlement and financing.

1. International
Trade
Settlement & financing

2. Md. Abdul jalil
ID: 814

3. 01
02
03
04
Exchange of Goods &
Services
Activities of Exporter &
Importer
International payments &
Exchange Rates
International Banking &
Finance
Internation
al Trade
Activities

4. 01
02
03
Beyond Normal
CreditCredit facilities may be availed even when
normal credit facilities are fully extended.
Profitability
EvaluationCustomer can evaluate the profitability of the
customer by counting financial costs.
Lower Margin
The creditworthy customer can get lower margin
than conventional overdraft.

5. Advance Payment01
02
03
04
Open Account
Trading
Documentary
Collections
Documentary Credit

6. .
.
Factors Determining Method of Payment
Negotiations
between exporter
and importer
The
commercial
practices in the
countries
involved

7. Open Account Trading
No bank involvement in settlement
of trade financing and in enforcing
the payment.
This method is based on complete trust
between the importer and exporter.
The documents of title is directly sent to the
importer, and importer endorses the payments.

8. 01
02
03
04
Definition
The collection service by a bank is a means whereby a creditor
in one country obtains payment from a debtor in another
country.
URC
The roles and responsibilities of banks in collections were
established by ICC and are known as Uniform Rules for
Collection (URC).
Documentary Collection
When the commercial and financial documents are present, it
is known as documentary collection.
Clean Collection
A clean collection consists only of financial documents.
Documentary Collections

9. Parties in Documentary Collections
Debtor
Debtor is usually the importer.
Importer endorses the
documents of pay the money.
Remitting Bank
This is where the document is
sent from the bank.
Collecting Bank
A correspondent bank of the
remitting bank who present the
documents and collect the
payment.
Principal
Exporter, who entrusts an
outward collection to a
commercial bank.

10. Collection Process (Outward Collections): Exporters
02
Exporter submits his
financial and
commercial
documents to his
banks in the home
country.
04
Collecting bank
arranges for the
importer to inspect
the documents.
06
When the bill is
received, collecting
bank sends the
proceeds to the
remitting bank.
01
Exporter negotiates a
contract with
importer and ships
his/ her goods.
03
The remitting bank
forwards documents
to the collecting
bank.
05
Collecting bank
releases the
documents against
payment or
acceptance of the bill
or the issuing of a
promissory note.

11. D/P versus D/A
02
The importer sign the bill as a
promise to pay it at a set date in
the future and documents are
handled to him.
01
Documents against Payment
means the bill is payable at sight
by the importer.
02
The collecting bank hands over
the documents only when
importer has paid the bill.
01
Documents against Acceptance
means the exporter allows credit
terms to the importer, and bill is
known as ‘usance’.

12. Advantages of Collections for the Exporter
01
02
03
Reduces Risk
It reduces the risk for both exporter and
importer for receiving payment and
goods.
Cheaper
Collections are cheaper than documentary
credit through the later is more safe.
Obtaining Finances
Exporter can raise finance by obtaining an
advance against the security of the bill.

13. Possible Disadvantages of Collections for the Exporter
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Rejection
Overseas buyer
might refuse to pay
or accept a bill on
presentation of the
documents.
Slow
Remittance of docs
and collection times
can be relatively slow
& exporter may have
to wait.
Financing
Cost
In case of usance
bill, exporter may
raise funds against
the collection but it
will increase cost .
Protesting
Cost
Any expenses
incurred by a
collecting bank for
protesting a bill are
charged to the
exporter.

14. Collection Process (Inward Collections):
Importers
01
The collecting
bank acts as
agent to the
remitting bank
and explicitly
follows the
instructions of
remitting bank. 02
Collecting bank
advises the
importer that
collection has
been received,
seeks his
acceptance or
payment of the
bill.
03
Collecting bank
advises the fate
of the bill of
exchange by
informing the
remitting bank.
04
The collecting
bank remit the
proceeds to the
remitting bank
promptly less
charges.

15. Advantages of Collections for the Importer
01
Term bill provides
the buyer with a
period of credit
from the exporter.
02
Importer can
inspect the
documents before
accepting a bill.
03
In clean
collection, buyer
can take
possession of the
goods before
paying for them.
04
The collection is
cheaper and
simpler for the
importer than
documentary
credits.

16. .
.
Disadvantages of Collections for the Importer
Legal action
might be taken
against if importer
dishonors an
accepted bill of
exchange.
Refusal to
accept goods
could lead to a
protest of non-
acceptance.

17. Recourse Finance versus Non-recourse
Finance
02
Avalization is the process
whereby a bank guarantees
a bill of exchange.
01
Bank grant loan against the
collection in order to make
available the exporter a part
of all of the sale proceeds.
02
Generally, loan against
collections are subject to full
recourse to the exporter.
01
Non-recourse finance may
happen where the bills are
avalized by an overseas
banks or the importer has
strong credit rating.

18. Documentary Credit
Irrevocable L/C
Irrevocable L/C provides greater
security to the exporter, hence
almost all the L/C issued today
are irrevocable L/C.
Revocable L/C
Importer can amend or cancel it
without prior notice to the
exporter, rate in today’s.
Irrevocable L/C
Once issued cannot be
amended or cancelled without
prior agreement of the exporter
L/C
It is a written undertaking by a
bank on behalf on a importer to
pay the seller an amount of
money within a specified time
provided the seller presents
documents strictly in
accordance with the terms of
L/C.
01
0
1
04
03
02
02
0
3
04

19. Process of Documentary Credits (L/C)
02
The Importer’s bank
is instructed to issue
an L/C in favor of the
exporter.
04
Exporter ships the
goods and presents
the documents to the
advising, confirming
or nominating firm.
06
Issuing bank makes
the documents
available to the
importer and receive
imbursement from
the importer.
01
Importer negotiates a
contract with
exporter providing for
payment by L/C.
03
Issuing bank sends
the L/C to the
exporter’s bank,
known as advising
banks, it may add its
own confirmation.
05
The documents are
forwarded to the
issuing banks for
receiving payment at
sight or in future
specified date.

20. Advantages of L/C for the Exporter
Security and
Confidence
Bank guarantee
3
1 2
4
5 6No buyer risk
Domestic payment
arrangement is
possible
Confirmation is
available
UCPDC reduces
unpleasant surprise

21. Advantages of L/C for the Importer
Importer can
obtain help
and advice
from the
issuing bank.
Importer can
insist on
shipment of
goods within a
reasonable
period.
Payments will
only be made
if documents
are presented
properly.
Some costs
may be
passed to
the exporter.
Importer’s
credibility
increases in
the eyes of
exporter.
Importer
obtain trade
credit and
better price
under L/C.

22. .
.
Disadvantages of L/C for the Importer
Bank deals with
documents, not
goods, it doesn’t
concern about
goods’
condition.
Importer is
required a
credit limit
approved by
bank, which
restricts other
credit
facilities.

23. .
.
Confirmed L/C & Deferred Payment L/C
Advising bank in
the exporter’s
country confirms
an L/C. So, the
L/C is
guaranteed by
two banks.
L/C payment
is made in
future date,
exporter need
‘t draw a bill of
exchange.

24. General Types of L/Cs
Transferable L/C
Standby L/C
Revolving L/C
Back-to-Back
Receipt &
Undertaking L/C
Red Clause L/C
3
1 2
4
5 6

25. Both involve
an
intermediary
as seller.
Intermediary
substitutes his
invoices in
place of the
original
invoices.
Terms and
conditions vary
between the
first and second
stages of
transactions.
Similarities Between Back to Back L/C and
Transferable L/C

26. BACKTOBACK
L/C
03
01
04
02
TRANSFERABLE
L/C
07
05
08
06
Back to Back involves
two L/Cs.
Differences between Back to Back L/C and
Transferable L/C
Transferable credit
involves one L/C.
Back to Back
arrangement may work
with any L/C.
Transferable L/C is
designated as
‘Transferable’.
L/C is issued under the
full responsibility of bank.
L/C is transferred
without the
responsibility of bank.
Intermediary needs
credit to be approved by
bank.
Intermediary needn’t
credit to be approved by
bank.

27. Bank
discounts the
bill of
exchange
(L/C) less
interest
charges.
Discounting
L/C is
obtained on
a non
recourse
basis.
Exporter can
offer credit
terms to
importer though
obtain
immediate
proceeds.
Post Shipment Finance for Exporters

28. Back to Back
Letter of
Credit.
Red Clause
Letter of
Credit.
Receipt and
Undertaking
Letter of
Credit
Pre Shipment Finance for Exporters

29. Post-shipment Finance for Importers
01
There are Two
types:
documentary
import loans and
clean import
loans.
02
Import loans used
as stand-alone
funding vehicle
and essentially
not much different
from other loans.
03
Finance is made
available against
the security as
letter of pledge or
trust receipts in
documentary
import loans.
04
Clean import
loans are
appropriate when
loans need to be
structured and
transactional
control is not
required.

30. Security Documents used with Documentary Import
Loans
A General Letter of
Pledge
Bills of Lading
A Warehouse
Warrant
Shipping Documents
Airway Bill
Trust Receipts
3
1 2
4
5 6

31. Advantages of Documentary Import Loans for the Banks
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More Loans
Banks can lend more
though the
customer’s balance
sheet don’t support
the levels requested.
Structured
Banks know the
source and timing of
repayment and
exactly know what
they are lending
against.
Transactional
Control
Transactional control
is obtained by
handling shipping
documents.
Early
Warning
Non-repayment on
due date provides an
early warning of
possible problems
ahead.

32. .
.
Disadvantages of Documentary Import for
Banks
Additional cost of
administration-
security taking,
structuring is time
consuming,
additional
monitoring.
The value of
goods may fall
significantly in
case of forced
sale.

33. .
.
Advantages of Documentary Import loans for
Importer
The increased
assurance
permits the
importer to
obtain increased
credit facilities.
The importer
may obtain
reduction in
pricing
compared to
overdraft.

34. .
.
Disadvantages of Documentary Import loans for
Importer
Complex
administration
and less
flexibility
compared to
conventional
overdraft.
Banks’
involvement in
movements of
goods are
disliked by
importer.

36. THANK YOU !
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